Reverse Mortgages The opportunity for brokers post major bank exits 13 March 2019
Agenda • Heartland overview • Growing demand • Market insights • Heartland Reverse Mortgage • Criteria • Fulfilment process and client safeguards • Typical customer and case study • Broker Proposition • Summary 2
Heartland Overview • Established in 2004 as Australian Seniors Finance • Over 8,500 customers and ~$700m in financial receivables • Nearly $1b in home equity released • Assisted over 17,000 seniors • FY19 24.9% annualised growth in first half • Purchased by Heartland, a NZ based financial services group, on 1 April 2014 • Parent company, Heartland Group Holdings, is listed on NZX and ASX • Supporting Dementia Australia Reverse mortgages are a core • Banking and Finance Oath - 100% committed product for Heartland, making up over 29% of finance receivables. 3
Growing demand • Number and proportion of older Australians is growing • 20,000 Australians turn 65 every month 1 • The number of Australians over 65 is projected to grow from 15 percent of the population in 2018 to 23 percent by 2050 2 • Despite home ownership rates falling, the 65+ category remains consistent at ∼ 85% 3 • Compulsory superannuation (paid by employers) only came into effect in 1992, improving coverage for employees from 51 percent in 1988 to 80% post implementation 4 4 1-4 Australian Bureau of Statistics ABS 2017. Australian Demographic Statistics, Jun 2016
• $3.16b market as at 30 September 2018 Market Insights • Market grew $124m in the past 12 months (excl. reclassification by major bank) • Heartland is fastest growing and has 21% market share • Last of the major banks (CBA / Bankwest) have exited the market • Westpac and Macquarie exited in mid-2017 • Biggest competition apathy, lack of awareness and tightening of the belt • Pension Loans Scheme creates awareness and provides validity • Arguably most heavily regulated consumer finance product in Australia 5
Poll Question 1 6
Reverse Mortgages • Similar to a regular mortgage, except: designed for those 60+ and no regular repayments • Continue to own home • Interest added to loan monthly • Loan is repaid when last resident vacates the property (downsize, sale, death, aged care) Heartland Seniors Finance Offers: • Standard Reverse Mortgage • Aged Care Option • Investment Property/Holiday Home as Security 7
Loan Uses 1. Debt Consolidation (54%) 2. Home Improvements (52%) 3. Income and Cash Flow (27%) 4. Travel (22%) 5. Car – Purchase/Repair (21%) 6. Medical (10%) * As at December 2018 8
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Customer Benefits • Free up funds to live a better retirement • Remove stress from everyday bills • Continue to own home, which provides connection to family, friends and community • Tick off bucket list • Remove debt servicing obligations • Flexibility of multiple drawdown options • Ability to repay at anytime • Considerable protections • Thorough process to ensure informed decision 10
Poll Question 2 11
Heartland Reverse Mortgage Loans • Market leading product • Flexible • Available from 60 years old • Lump sum, regular advance and reserve drawdown options • Repay (partially or in full) at anytime • Redraw available • Equity protection option (10%, 20%, or 50%) • Competitive rate currently 6.54% p.a., comparison rate* 6.56% p.a. • Interest rate is variable to provide maximum flexibility, which is more important to this demographic than certainty. Especially given there are no regular repayments required. • Settlement Fee - $495 valuation fee – included if valued <$2m, otherwise quote • No ongoing fees 12
Criteria • Maximum Loan-to-Value Ratio (LVR) is based on the age of the youngest borrower • Max LVR = Age less 45 (represented as a %) 60 65 70 75 80 85 90+ 15% 20% 25% 30% 35% 40% 45% • Maximum two borrowers • Other occupiers allowed (e.g. a carer or family member), however not protected under loan • Minimum property value $200k (higher in some locations) • Minimum loan size $5k • Residential property, of conventional construction in good condition • Target locations are cities and regional centres with deep property market 13 13
Aged Care and Secondary Property Options • Reverse Mortgage repayment trigger is customer vacating property. • For aged care or a secondary (investment property / holiday home), the borrower does not reside in the property. • Aged Care: • Fixed 5 year term • +5% higher LVR • Otherwise same criteria as standard reverse mortgage • Provides breathing space • Secondary property: • 25% discount on property value • Repayment is based on last nominated borrower ceasing to reside in primary residence (or sale of property) 14
Fulfilment Process and Client Safeguards • HSF have developed a socially responsible product with a thorough fulfilment process • Regulated under NCCP • Enquiry around future needs including aged care • MoneySmart Projection provided to clients to assist understanding • Independent legal advice around loan contract is mandatory • Family discussion, Centrelink, and financial advice encouraged and attested to • Assessment made to ensure that loan is not unsuitable • Three Promises^ to every customer • Compliance call ^provided customers meet obligations under the loan 15
Customer Satisfaction • In our most recent customer survey, results showed an astounding 96% of customers would recommend Heartland to friends and family. • Adding to that, 94% have said they would recommend taking out a reverse mortgage to friends and family. 16
Typical Customer • Retired couple (48%) / female (35%) / male (17%) • 70-75 years old • Have depleted super and other assets • On Aged Pension • Sydney, Melbourne, Brisbane, Coastal NSW / QLD • Property worth $850k • Fund 12%, balance set aside for Cash Reserve and/or Regular Advance • Use it for renovations, travel, medical expenses, car, aged care, debt consolidation, mortgage refinance, support next generation, everyday bills, etc. 17
Case Study • Jack 74 and Bev 70 • Home value: $800,000 • Maximum loan amount: $200,000 (based on Bev’s age – 25%) • Initial Borrowing: $100,000 (including fees) • Payoff a current mortgage • Fix up their home • Remaining available facility: $100,000 • Drawdown additional $15k 2 years after taking loan for a holiday with grandkids • Drawdown additional $15k 4 years after taking loan for medical expenses • Still has $70k for any future expenditure or unforeseen expenses Loan (7% int. rate) Property Value (3% growth rate) Equity Remaining 5 Years $176,341 $927,419 $751,078 10 Years $249,985 $1,075,133 $825,148 15 Years $354,385 $1,246,374 $891,898 18
“Peace of mind” Customer Stories “Given us the freedom to do so many things” “Financial pressures eased” “You are a lifesaver” “Maintain my independence” 19
Broker Proposition 20
Why Offer Reverse Mortgages? • Broaden and diversify business • Grow revenue • Long term sticky customers • Expand referral base • Get in to growing market • Another arrow for the quiver • Straight forward application process • Minimal ongoing maintenance • Opportunities within customer base • Leverage referral network 21
Poll Question 3 22
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Commission Product Upfront on drawn Upfront on undrawn Post settlement Trailer amount amount drawing Standard Reverse Mortgage 0.88% 0.44% 0.44% 0.22%p.a. Aged Care Option* 1.00% NIL 1.00% NIL Secondary Property 0.88% 0.44% 0.44% 0.22%p.a. *Aged Care Option structure available for all loans on request • Same interest rate for all new customers • Same commission rate, no dependency on size or volume • Same fees apply to all loans 24
Poll Question 4 25
Summary • Growing market and increasing demand • Australia’s leading provider • Award winning and socially responsible product • Heavily regulated with robust and thorough fulfilment process • Great opportunity for brokers Help Australian seniors live a better retirement 26
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